Energy Analysis: Carbon reduction policies to have widespread energy implications

Ten Insights on Carbon Policy and Its Implications

from: http://www.altenergystocks.com

On November 27, I attended the National Renewable Energy Laboratory's (NREL) Fifth Energy Analysis Forum, hosted by NREL's Strategic Energy Analysis & Applications Center. The forum focused on carbon policy design, the implications for Renewable Energy and Energy Efficiency. As a stock analyst focused on that sector, I am extremely lucky to have NREL as a local resource: the quality and the level of the experts at NREL and the ones they bring in is probably not matched anywhere in the country, and conferences like these provide priceless insights into what these Energy Analysts are thinking.

Why should investors care what analyst think about the best form of carbon regulation, when it will be the politicians who eventually implement it? Because these are the very experts politicians will call on when designing their legislation. While interest groups will also undoubtedly have a large say in regulation, they are unlikely to come up with new ideas which help shape future regulation. The new ideas will come from the 50 or so analysts that gathered in Lakewood last Tuesday, and the regulations based on these ideas will be critical to the business plans of the companies we invest in.

This is a link to my notes. I will likely find many investment ideas there, only some of which will make it into articles. For those with the time and interest, I expect they will be a valuable resource. For the other 99% of readers, here are ten interesting, intriguing, or just plain surprising ideas that pop out for me.

From Howard Gruenspecht, Deputy Administrator: Energy Information Administration

INSIGHT #1: "Clean Coal" is a Solution to a Political Problem

Integrated Gasification Combined Cycle with Carbon Capture and Sequestration (IGCC w/ CCS or "Clean Coal") is popular with legislators because it is a solution to a political problem, not because the technology is ready or because analysts expect it to be the most economical solution. Nuclear power is likely to be cheaper, and it is an existing technology.

INSIGHT #2: Electricity Generation may be a Better Use of Biomass than Liquid Fuels

If the goal is to reduce net carbon emissions, burning biomass for electricity (either by cofiring in coal power plants, or in dedicated biomass generation stations) is more effective than using the same biomass to produce liquid fuels, such as cellulosic ethanol. TK note: I believe that many investors in companies developing methods to produce cellulosic ethanol are underestimating the competition for available feedstock from biomass based electricity generation.

From Joe Kruger, Policy Director National Commission on Energy Policy

INSIGHT #3: Electricity Generators May Get Windfall Profits

Allocation of Emission Credits is likely to create windfall profits for existing generators except in carefully designed auctions.

From Eric Smith, EPA Climate Economics Branch.

INSIGHT #4: EPA May Have to Regulate More than Tailpipes

Because of the Massachusetts vs. EPA lawsuit, the EPA must now regulate Greenhouse Gas (GHG) emissions from automobile tailpipes. The EPA is now studying GHG, and if the EPA concludes that GHG represent an endangerment to the public, the EPA will be forced to regulate GHG emissions from many more sources than just vehicles.

From Rich Cowart, Regulatory Assistance Project

INSIGHT #5: It's Better to Allocate Credits to Electricity Distributors than Producers

Greenhouse Gasses need not be regulated at power generators, and other approaches may lead to more efficient reductions. Mr. Cowart was introduced as "Father of the Load-based Cap," in which GHG emissions are distributed to power distributors on behalf of their customers. Carbon regulation can occur anywhere from the mine/wellhead when a fossil fuel is first taken from the ground, to the final consumer. Where this regulation takes place matters because different actors have different abilities to change the way power is consumed. Mr. Cowart argues effectively that for the electricity and natural gas sectors, energy distribution companies are best placed to work with consumers to reduce overall energy use.

BONUS INSIGHT (my own): China Can Build Coal Plants, But We Can Cap Their Emissions

Worries about the number of coal plants built in China and other developing countries might be best dealt with by applying carbon regulation at the mine mouth. China is now a net coal importer. Given that, the rest of the world does not need China's acquiescence to regulate carbon emissions: the coal exporters of the world could form an Organization of Coal Exporting Countries (OCEC), which would effectively be able to limit the total amount of coal burned around the globe. The United States, which I have previously called the "Saudi Arabia of Coal," could play the role of the swing producer, much as Saudi Arabia has traditionally played in OPEC.

From Karl S. Michael, NYSERDA

From Karl S. Michael, NYSERDA

INSIGHT #6: Reggie Never Asked, "Where are GHGs best Regulated?"

The Northeast Regional Greenhouse Gas Initiative (RGGI, or "Reggie") will be an emissions cap on power plants because the question was never asked: are power plants the right place to regulate Greenhouse Gasses? Future climate regulations should ask this question up front.

Todd Litman, Victoria Transport Policy Institute. I've long been a fan of Todd Litman. Among other things, his comprehensive economic analysis was very influential in providing the ideas for my recent articles Investing in Mode-shifting, and my current love affair with commuter rail stocks.

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